Institutional opinion: Oracle, NFT and incremental market projects will usher in a big explosion in 2020
Produced | Odaily (ID: o-daily)
Produced | Odaily (ID: o-daily)
In 2018, the blockchain was in the limelight, and "gold" was everywhere, and many crypto funds were throwing a lot of money. However, after the currency price slumped and the bubble burst, a large number of projects and investors withdrew from the gold rush scene.
Even so, some top encryption funds are still quietly laying out (see the Odaily article for details,Encrypted funds died in batches, but these ten are still selling at high frequency). Among them, Fenbushi Capital, as an active and discerning investment leader in the primary market, stands out. According to public information, Fenbushi Capital made a total of 12 investments in 2019, with an average investment amount of more than 10 million yuan in a single project. In the latest blockchain industry report released by CB insights, Fenbushi Capital ranks among the most active risks The top five investment institutions and the only Chinese venture capital on the list.
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Governance Oracles are difficult to go on, and Oracles that cooperate with traditional institutions will usher in an explosion
Odaily: You said in your speech that 2020 will be the year of the Oracle (oracle machine) explosion. Why?
Huang Lingbo: First, let's talk about the classification of Oracle. Oracle itself is divided into three categories: the first category is the data generated natively on the chain, which is the original on-chain database Oracle; the second category of Oracle is to cooperate with traditional institutions and grant credit to traditional institutions, allowing them to be used as public chains or alliance chains. Nodes output data to the chain; the third type of Oracle uses the governance mechanism to verify the data itself and upload it to the chain.
Many oracle projects before this year were decentralized and governance-like oracles, but this kind of oracle is actually very difficult to implement. It may take M2M (Odaily note: machine to machine, machine to machine) to develop as a whole. Opportunities, so many Oracles have transformed into the second type of Oracles, cooperating with traditional institutions, and doing Oracles by granting trusted nodes.
After continuous practice from 2017 to 2019, we found that the first type of oracle (data natively generated on the chain) has not been very successful in the end due to the poor implementation of on-chain applications and little room for development. good verification. Therefore, I personally think that in 2020, everyone may turn their attention to outside the circle, and are more inclined to develop the second type of Oracle, to cooperate with many traditional institutions as nodes, and to upload traditional world data to the chain, rather than being limited to the chain. develop these data.
In addition to the impact of the above two major factors of technology and market, there is also policy support.
Odaily: Oracle governance is difficult to implement, what difficulties did you encounter?
Huang Lingbo: I personally think there are two reasons. The first aspect is the governance mechanism. In the blockchain world, governance is a very difficult thing. It turns out that many Oracles are governed through multi-party verification. For example, more than 50% of the votes are unified. , the system assumes that the result is true. Then in this verification process, the system will provide token incentives to the nodes participating in the verification. However, this method still has a lot of room for evil, and the premise for nodes to participate in verification is that the token itself has value. Once the token loses value, the system will not be able to attract nodes to participate in verification, and the ecology of the entire system will be difficult to maintain. go down. So I think governance itself is a very difficult thing.
Moreover, the governance structure between people is a very complicated matter, which involves many complicated theories such as game theory. Because human motives are complex, it is difficult for the system to fully judge human motives and behaviors, so it is also difficult to design a perfect governance mechanism to make the data on the chain verifiable and real.
Therefore, if Oracle is based on machine to machine, you only need to verify the authenticity of the data, and you may not need to design a complicated governance mechanism at all.
Therefore, if Oracle is based on machine to machine, you only need to verify the authenticity of the data, and you may not need to design a complicated governance mechanism at all.
Odaily: If the machine you mentioned is ultimately controlled by humans, does this theory still apply?
Huang Lingbo: It depends on what the bottom layer of the machine is. There are two types of data stored in the machine, one is active data, and the other is passive data. Many of the data we have come into contact with before are still active data, and the database is written by people, but in the future, many of the data we will come into contact with are likely to be passive data. For example, smart bracelets that measure human health can directly record people’s health data. , not actively entered by people, these data are objective, if they are recorded securely and immediately chained, the system only needs to verify the hash value itself to ensure that it will not be tampered with.
Odaily: Since you are so optimistic about the future of Oracle, can you talk about the layout of Fenbushi Capital in this track?
Huang Lingbo: We have been paying attention to Oracle, and we are also very optimistic about this track. We used to see more decentralized Oracles, that is, Oracles of governance, but now we are intensively watching some cooperation projects with traditional institutions. Let me emphasize that the main purpose of this type of project itself is not to do Oracle, but to provide blockchain technology services to traditional institutions, but what they have achieved will bring great help to the development of Oracle in the industry. In addition, Oracle is only the first step. What really has room for imagination is the business model after the blockchain (collectively referred to as the Oracle project in a broad sense).
This type of project can also be divided into three categories: the first category is to cooperate with trusted nodes, and then use tokens to motivate nodes; the second category is to cooperate with governments and financial institutions, because their data needs to be uploaded to the chain, but they do not have the technology capabilities, and such projects can provide them with blockchain technology services, and then build a blockchain data platform after providing technical services. In the future, some data transactions or on-chain storage may be performed on this platform. The system You can charge by supporting these behaviors. This type of service is more inclined to enterprise services; the third type is to cooperate with the C-end, and cooperate with those traditional scenarios with traffic, such as electronic vouchers and confirmation of rights. The data of C-end users is uploaded to the chain, and tickets are one of the good landing scenarios for this type of project.
But going to the chain has only completed the first step. What really has room for imagination is the things after going to the chain, such as data transactions. The system draws a certain percentage of commission during the data transaction process, and the income of the project becomes long-term. Not a one-time fee. For example, ticketing, on-chain is only the first step, and the greater room for future development may be the second-hand transaction of tickets, and a certain commission can also be charged for this process.
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NFT and tokenize projects will have good development in 2020
Odaily: According to the projects you have been in contact with, what is the development status of the three generalized Oracle projects you mentioned above?
Huang Lingbo: Looking at it now, there are indeed some projects that have been implemented and realized revenue. Some domestic technical service projects can achieve tens of millions of RMB in revenue in 2020. What they do is to provide technical services for the government and financial institutions. The budgets of governments and financial institutions for blockchain business are also greatly increased.
There are still relatively few generalized Oracle projects at the To C level, but it has changed somewhat now. At present, some good ideas have emerged, such as NFT (non-homogeneous tokens). NFT is very suitable for those application scenarios that require uniqueness, such as tickets and IP. Now tickets have already had successful cases, such as AlphaWallet, Other cases are relatively rare.
There is another type of project that I see is currently starting to be tokenize (tokenization) projects, which are used to transfer dividend rights and income. This type of project is more suitable for some consumer industries, such as catering, hairdressing and other life services. Income and cash flow are actually very good, and its cash flow can be directly used to motivate its users, employees, or holders of dividend rights.
For example, I have the right to share dividends at this table, so the funds that consumers pay for eating at this table can be immediately transferred to my account and the employees who serve this table through smart contracts. This type of project operates through smart contracts + tokens. The tokens represent the dividend rights enjoyed by users on this dining table, and then the proportion of everyone's dividends is written in the smart contract, so that the cash flow can be directly distributed.
We have noticed that this kind of tokenize project has begun to land. This kind of project is very close to people's real life, directly bound to cash flow, and in the process, data starts to be uploaded to the chain. In general, at the to C level, NFT and tokenize projects should have a good development this year.
Odaily: You just mentioned that the transfer of dividend rights is very similar to STO?
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The development prospect of the privacy coin project is not as good as that of the privacy layer project
Odaily: Many bigwigs say that privacy protocol projects will explode in 2020. What do you think of privacy protocol layer projects?
Huang Lingbo: We divide protocol layer projects into three categories: data, finance, and governance. The privacy layer is classified as data by us.
We have been looking at privacy layer projects since 2018. The earliest ones we looked at were privacy currency projects. Generally, they build a public chain by themselves. At present, there are many such projects, from the earliest Monero to Zcash, to Grin and Beam. However, these privacy currency projects can be applied in relatively few directions, and the applications are more transactions and payments with gray areas. Therefore, since 2018, we feel that the privacy layer may be a better investment direction.
The privacy layer is different from privacy coins. It can be combined with the payment systems of various public chains, which is relatively flexible. For example, we were more optimistic about aztec before, and we are now one of his nodes. Compared with privacy coin projects, aztec is more flexible and realizes more functions that privacy coins cannot achieve.
In addition, privacy also involves a very important issue, which is the issue of compliance. Why is it difficult for privacy coins to have a large market? Because they are stepping on the red line, they are walking in the gray area, and they are prone to compliance risks. But the privacy layer is different. It can set new privacy functions and limit the conditions for privacy opening, such as realizing the auditable function. For compliance, auditability is very important.
aztec So, we think that in the future, the privacy layer can be combined with compliance to meet various privacy requirements, so we are currently looking at many privacy layer projects.
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Blockchain games should be done in reverse
Odaily: So what do you think of the development of blockchain games in 2020?
Huang Lingbo: Hey, everyone has been talking about blockchain games since a long time ago, but there have been no good cases. Nowadays, many blockchain games are gambling and speculative, and blockchain games that perfectly combine entertainment and speculation have not yet appeared. In fact, we have seen many blockchain game projects before. Recently, inspired by some game project parties, I have some new thinking.
It turns out that the idea of many blockchain projects to make games is wrong. They always want to embed the technology or concept of blockchain in the game. I think this direction should be reversed. Because the game itself has assets such as props, tokens, points, etc., these assets can be traded within the game system, there is no need to use the blockchain to get a deposit certificate, and then go to the chain, there is no need to use the blockchain platform.
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The core of the application layer is the combination of the protocol layer, and the middleware is the process of combination
Odaily: What do you think of the middleware industry? As far as I know, many institutional investors are very optimistic about this track.
Huang Lingbo: I feel that the word "middleware" seems to have become popular in the industry recently, which is quite interesting. In fact, at the DevCon (Ethereum Annual Developers Conference) held in Tokyo and Osaka last year, I found a word that appeared frequently, "composability", which refers to the composition and combination of various module components. I understand that middleware is a derivative of this. This is actually very similar to some of our previous ideas. We believe that the core of the application layer is the combination of the protocol layer. Middleware is the plug-in combination of various protocol modules. "Middleware" can make it easier for application developers to use the blockchain to achieve their goals, giving application developers a more friendly environment, and developers themselves do not need to have a deep understanding of blockchain technology itself, but the core of middleware It is still the various component modules. At this stage, in the field of native blockchain projects, there are still few modules that can achieve the ultimate.
In my opinion, many previous projects on the protocol layer did not make their decentralized protocols very perfect. Except for some early open finance projects such as MakerDAO and 0x, other decentralized protocols are still very immature.
But there is a progress here. It turns out that everyone understood that the application layer and the protocol layer are two independent entities, but later we felt a progress from the market. Everyone began to understand that the application layer is a combination of the protocol layer. The components may be the process and upgrade of this combination. I think it is an improvement in the market to realize the concept of "combination", but the process of formation is not easy.
Odaily: So do you focus on investing in the track of the protocol layer?
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The investment logic of Fenbushi Capital
Odaily: Earlier we talked about a lot of subdivided fields, can you briefly summarize the investment logic of Fenbushi Capital?
Huang Lingbo: To sum up, the tracks we invest in can be divided into three categories. The first category is enterprise service projects, in which we generally invest in equity; the second category is blockchain ecological projects, such as exchanges and wallets. , media, etc.; the third category is blockchain-native projects, such as public chains and protocol projects, and protocol projects are divided into three categories, data (web3), finance (open finance) and governance (DAO) .
In 2019, blockchain-native projects are the track with the heaviest investment. Fenbushi Capital originally invested in ETH, and we were also early investors in Polkadot, so this track must be our long-term focus, but in 2019 There are not many projects on this track, the overall quality is not particularly good, and the price is also very high, so our investment in blockchain native projects in 2019 is relatively small compared to before. But we will work hard to find some interesting protocol layers and new consensus mechanisms in these projects, and we will continue to find them for a long time.
In 2019, we invested in relatively many blockchain ecological projects, such as derivatives exchanges and wallets. At the same time, we also invest in or pay attention to some interesting protocol layers, such as Tokenscript, on-chain data index protocol, economic model simulation, privacy computing protocol, staking derivative protocol, etc.
Odaily: In terms of derivatives, many exchanges announced the deployment of options business in 2019. How do you see the development of options business in 2020?
Huang Lingbo: I have been optimistic about the option business for a long time. In the second half of last year, I felt that the direction of options is very good. But generally speaking, options are not a business to C, it is a business to B, and it is a B-side business. A way for institutional risk hedging. In traditional finance, options are a way for the upstream and downstream of the commodity industry chain to hedge risks. In the field of tokens, except for mining machines, there seems to be no such upstream and downstream. Therefore, I am more optimistic about tokens with mining attributes options.
In fact, we also invest in wallets, such as Math Wallet and Torus. From the perspective of the Internet, the wallet is actually a traffic portal. From the perspective of the blockchain, the wallet may subvert itself into a protocol layer in the future, such as an aggregation A type of wallet protocol, which can be empowered to other project parties.
Odaily: Similar to imToken's current approach, users can directly convert ETH into some ERC20 tokens, plus other derivative services such as staking.
Huang Lingbo: When it comes to staking, I am actually quite optimistic about staking derivatives, and staking will definitely produce derivatives in the future. Staking is a bit similar to the concept of creditor’s rights. Obtaining income by locking positions will inevitably lead to asset securitization. Therefore, staking is also an important track for our investment.
In 2020, we will continue to pay attention to this track. In 2019, many of these transactions, wallet layers, and staking projects have appeared. 2020 is a year to verify their strength, and the market structure will gradually form.
Odaily: Finally, can you talk about the investment plan of Fenbushi Capital in 2020?
Huang Lingbo: In the long run, Fenbushi Capital must pay the most attention to investment in native blockchain projects (the third category of projects mentioned earlier), including Web3, Open Finance, DAO, etc. However, based on market opportunities, it should be more inclined to invest in the first type of enterprise service projects mentioned above in 2020, and the second type of blockchain ecological projects, exchanges, etc. will become more prominent in 2020. The price will not be too cheap, and for start-up projects, we will focus on lowering the user threshold and opening up incremental markets, including keyless wallets and robo-advisors.
However, Fenbushi Capital is raising a new phase of large-scale funds, so whether it is an early-stage project or a project with a relatively mature development in the later stage, we all welcome it. In summary, it is still the track, team and timing. Then in 2020, we may make more investments in the secondary market, and there should be quite a lot of opportunities in the secondary market this year.
